Palliser Capital calls out Rio Tinto board ahead of a shareholder vote on its dual listing

As Rio Tinto shareholders prepare to have their say on leaving the London listing behind, activist hedge fund Palliser Capital has accused the mining giant’s board of running scared.

BHP’s and Rio Tinto’s buildings dominate the skyline in Perth. Picture: Sharon Smith

Activist hedge fund Palliser Capital has accused the Rio Tinto board of running scared on the eve of a vote on the future of the miner’s dual listed structure.

Palliser chief investment officer James Smith said the fund wanted Rio to conduct a transparent review of unification and make the findings public so that shareholders could make an informed decision.

“We are long-term holders of Rio shares and are focused on seeing value realised through best-in-class capital allocation,” he said.

“In our conversations with Rio’s top shareholders, it is clear that they are interested in the value-enhancing potential of unification, but more important, all agree that more disclosure is better than less.”

Palliser sees merit in Rio ditching its London listing because its shares trade at a higher premium on the ASX.

Big investors and advisory firms remain at odds on the issue ahead of a London vote on Thursday. Mr Smith questioned why Rio’s board, including chairman Dominic Barton, had been so strident in opposing a review.

“The vigour with which the company has resisted this request is telling that they fear the conclusions of an independent inquiry will run counter to their own preferences,” he said.

“However, the board has an obligation to set its own agenda aside and do right by its shareholder base … the board would be best served by displaying best-in-class governance by conducting the full, fair, and transparent review that shareholders deserve.”

Mr Barton took aim at Institutional Shareholder Services after it backed the Palliser motion. In a letter to investors, he accused ISS of dismissing the material dual-listing unification costs and significantly overstating the benefits.

He said ISS accepted incremental wastage of $US15bn of franking credits over the next decade as a price for unification, and told investors he had “significant concern” with some the advisory firm’s conclusions.

The Rio board has been unanimous in recommending shareholders vote against the proposal and has described Palliser’s assertions of an alleged $US50bn of value loss due to the dual listing structure as “unfounded and misleading”.

Glass Lewis also supported the Palliser motion while proxy advisers ACSI and Ownership Matters advised voting against the motion.

“Rio’s response adds nothing new to the discussion on unification or to what has already been presented in the AGM notice,” Mr Smith said.

Goldmans Sachs has warned ditching the dual-listed structure may cost the miner between $US7 and $US15bn and cruel its ability to continue paying fully-franked dividends to Australian shareholders.

Rio has estimated the tax bill alone would be “mid-single digit” billions.

Mr Smith worked at Elliott Management when it led a successful campaign for the unification of BHP’s listings in the UK and Australia.

Originally published as Palliser Capital calls out Rio Tinto board ahead of a shareholder vote on its dual listing